THE COMMISSIONER OF INCOME TAX V. KALPANABEN R SHAH

TAXAP/898/2007

AI Insights

The case involves appeals by the Commissioner of Income Tax against the decision of the ITAT, Ahmedabad Bench, which had allowed the assessees to claim short-term capital losses on the sale of mutual funds. These transactions occurred within one day after the assessees earned tax-free dividend incomes. The main legal question was whether such losses could be disallowed under the Income Tax Act. The High Court referenced a previous judgment in Tax Appeal No.896 of 2007 and a Supreme Court decision in CIT vs. WALFORT SHARES AND STOCK BROKERS P. LTD. to conclude that the losses were genuine and the transactions were not an abuse of tax provisions.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728389 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 17-12-2014
• Assessment Year: misc
• Other Referred Cases: CIT VS. WALFORT SHARES AND STOCK BROKERS P. LTD.
• Laws Referred To: Income Tax Act, Constitution of India, 1950
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: TUSHAR HEMANI
• Assessee Lawyers: M R BHATT; MAUNA BHATT
• Keywords: ITAT; Mutual Funds; Short Term Capital Loss; Tax free dividend; CIT vs. WALFORT SHARES AND STOCK BROKERS P. LTD.
• Section: 10(33); 10(33); 94(7)

Judgement Text

"O/TAXAP/897/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 897 of 2007 With TAX APPEAL NO. 898 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ THE COMMISSIONER OF INCOME TAX....Appellant(s) Versus DARSHAK R SHAH....Opponent(s) ================================================================ Appearance: MR MR BHATT, SR. ADVOCATE, MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR TUSHAR P HEMANI, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 17/12/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Since, the issue involved in both the Page 1 of 5 O/TAXAP/897/2007 JUDGMENT appeals is common, they are heard together and disposed of by this common judgment. 2. These are the appeals by the appellant- Revenue, seeking to assail the order of the learned ITAT, Ahmedabad Bench (for short, ‘the Tribunal’), Dated : 08.09.2006, rendered in ITA Nos. 1566 & 1568/Ahd/2006 for A.Y. 2002-03, whereby, the Tribunal dismissed the said appeals filed by the Revenue. 3. The brief facts of the case, as emerging from the Assessment Order, are that the respondent-assessee in respective appeal filed his / her return of income for the year under consideration, claiming short-term loss from A.Y. 2001-02. The cases of the assessees were taken-up for scrutiny by the concerned A.O. and he made certain additions / disallowances to the income of the respective assessee. The assessees, therefore, approached the learned CIT(A) by filing separate appeals, which came to be allowed in part. It appears that, then, the assessees as well as the Revenue carried the matter before the Tribunal, wherein, the Tribunal passed the impugned order. Hence, the present appeals. 4. At the time of admitting the present appeal, this Court framed the following question Page 2 of 5 O/TAXAP/897/2007 JUDGMENT of law; “Whether on the facts and circumstances of the case, the Appellate Tribunal was right in allowing the short term capital loss on sale of mutual funds within one day after earning tax free dividend income thereon?”” 5. At the very outset, Mr. Hemani, learned Advocate for the assessees in respective appeal, submitted that the question framed by this Court is no more res integra and that the same has already been answered by this Court in favour of the assessee vide its judgment, Dated : 23.06.2011, rendered in Tax Appeal No.896 of 2007 in the case of one of the assessees, herein. While disposing of Tax Appeal No. 896 of 2007, this Court took into consideration a decision of the Apex Court in “CIT VS. WALFORT SHARES AND STOCK BROKERS P. LTD.”, (2010)326 ITR 1 [SC], wherein, the Apex Court, under the similar circumstances, answered the issue in favour of the assessee, observing and holding as under; “The real objection of the Department appears to be that the assessee is getting tax-free dividend; that at the same time it is claiming loss on the sale of the units; that the assessee had purposely and in a planned manner entered in to a pre-meditated transaction of buying and selling units yielding exempted dividends with full knowledge about the fall in the NAV Page 3 of 5 O/TAXAP/897/2007 JUDGMENT after the record date and the payment of tax-free dividend and, therefore, loss on sale was not genuine. We find no merit in the above argument of the Department. At the outset, we may state that we have two sets of cases before us. The lead matter covers assessment years before insertion of Section 94(7) vide Finance Act, 2001 w.e.f. 1.4.2002. With regard to such cases we may state that on facts it is established that there was a \"sale\". The sale-price was received by the assessee. That, the assessee did receive dividend. The fact that the dividend received was tax-free is the position recognized under Section 10(33) of the Act. The assessee had made use of the said provision of the Act. That such use cannot be called \"abuse of law\". Even assuming that the transaction was pre-planned there is nothing to impeach the genuineness of the transaction. With regard to the ruling in McDowell & Co. Ltd.v. Commercial Tax Officer [1985] [154 ITR 148(SC)], it may be stated that in the later decision of this Court in Union of India v. Azadi Bachao Andolan [2003] [263 ITR 706(SC)] it has been held that a citizen is free to carry on its business within the four corners of the law. That, mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even by the judgment of this Court in McDowell & Co. Ltd.'s case (supra). Hence, in the cases arising before 1.4.2002, losses pertaining to exempted income cannot be disallowed.” 6. Mr. Bhatt, learned Sr. Advocate, does not dispute the settled position of law, as Page 4 of 5 O/TAXAP/897/2007 JUDGMENT above, and he is unable to point out any other judgment of the Apex Court taking a contrary view, then, the one taken by the Apex Court in the case of “CIT Vs. WALFORT SHARES AND STOCK BROKERS P. LTD.”(Supra). We hold that the Tribunal was right in allowing the short term capital loss on sale of mutual funds within one day after earning tax free dividend income thereon 7. In view of the above discussion, both the appeals fail and are DISMISSED. The question framed in these appeals is answered in FAVOUR of the assessee and AGAINST the Revenue, accordingly. No order as to costs. (K.S.JHAVERI, J.) (K.J.THAKER, J) UMESH Page 5 of 5 "